Learn one financial lesson every day: short selling
What is short selling?
First of all, short selling is an investment term, which is a method of buying and selling stocks and futures. To put it simply, short selling is a way of selling stocks.
Investors predict that the stock price will fall, borrow some stocks to sell for cash, and then buy back the same amount when the stock price falls.
Such a back and forth, making money by taking advantage of the stock's downward trend, is short selling in investment.
It originated from the Dutch East India Company.
An executive was kicked out and wanted to continue to make money from the company, so he made such an operation, which continues to this day.
For example
Nick has many friends who collect a commemorative card
This card has a limited circulation and the price is already 500 yuan per card, but Nick has never bought it.
Recently, Nick has noticed that the circulation of cards continues to increase. He thinks that if this continues, the price of cards will definitely drop. So Nick borrowed 50 cards from a good friend and promised to return them to his friend in three months.
After getting the cards, he sold them for 500 yuan and received 25,000 yuan in cash
A month later, the price of the card dropped to 300. Zhang San bought 50 cards for 15,000 yuan and returned them to his friend, and he made a profit of 10,000 yuan in the difference
Nick borrowed cards to sell and then bought them back at a low price to repay them, which is equivalent to shorting cards. Cards are equivalent to investing in stocks
What are the risks of short selling?
Doesn't it sound good in the case? It feels like you are getting something for nothing. But in reality, the risks of short selling are very high. In stocks, there is no ceiling for stock price increases, which means there is no lower limit for losses from short selling.
Back to Nick's case, if he fails to judge, the price of the cards will not only not drop, but also rise to 800 after three months, which means that he needs 40,000 yuan to buy 50 cards. In addition to the 25,000 yuan cash out, he needs to pay 15,000 yuan to buy them back. If the short selling fails, the loss will be 15,000 yuan, and the price of the cards may even rise to 900 or 1,000 yuan. The cost of short selling failure is even greater.
The same is true for stocks.
How to short sell in reality?
Securities companies can open a function called short selling, and then you can borrow stocks from securities companies to sell and short sell. When the stock price drops, buy it back and return it to the company
However, securities companies will charge some interest and handling fees, and short selling can only be done within the company's limited range of stocks. And just like leverage
How do you view short selling?
Shorting is also called bearish, buying low, and short selling. In essence, it is to make money by selling first and then buying low.
For ordinary investors, it is recommended to be conservative and not use it when there is an opportunity.
As mentioned in the case
The loss of short selling is unlimited, because the stock price rises unlimitedly, it is easy to make a mistake in judgment and get stuck
The safety of the principal is always the most important thing in investment